Federal Judge Dismisses Portion of Hannaford Lawsuit Seeking Reimbursed Medical Payments from Injured Employee and Her Lawyer

Ruling expected to impact how Maine employers seek the reimbursement of funds paid on behalf of beneficiaries

PORTLAND, Maine – A federal judge’s dismissal of eight counts of a lawsuit filed by the Hannaford Health Plan against an injured employee and her lawyer is expected to impact how Maine employers secure reimbursement for medical treatment covered under employee benefit plans.

The case also illuminates inequities in the “right of recovery” provision in the federal Employee Retirement Income Security Act (ERISA), which governs employee benefit plans such as the Hannaford Health Plan, said Peter Rubin of Bernstein, Shur, Sawyer & Nelson, who represented both the plan participant and lawyer named in the case.

U.S. District Court Senior Judge Gene Carter earlier this month granted a motion to dismiss eight counts of a lawsuit, including allegations of fraud, unjust enrichment, and tortious interference with contractual relations and conversation made by Hannaford Health Plan against Ellen Green, who was seriously injured in a hit-and-run accident, and her lawyer, Jack Simmons, a well-known Maine trial lawyer.

The Hannaford Health Plan had paid $140,000 in medical bills on behalf of Green. The Plan terms provided that Mrs. Green was obligated to reimburse the Plan from the settlement funds collected from the person who hit her.

In 2002, Simmons settled Green’s claim with the driver’s auto insurer and her own underinsured motorist carrier for $300,000, the maximum coverage available. Simmons, an experienced plaintiff’s attorney, had valued Green’s damages at a minimum of $1 million, but knew his client likely would collect nothing beyond the driver’s coverage limit.

Simmons then distributed the settlement proceeds to Green and to his firm, Berman & Simmons. Months later, the Hannaford Health Plan contacted Simmons for the first time, seeking reimbursement for the entire $140,000 in medical payments made on Green’s behalf. Simmons told them they were too late since the funds had already been dispersed.

Hannaford Health Plan then sued both Green and Simmons for the amount of the Plan payments, asserting a range of state law and federal common law claims, including unjust enrichment, fraud, tortious interference with contractual relations, and conversion.

ERISA makes clear that benefit plans are entitled to be reimbursed the full amount of funds paid to beneficiaries in personal injury actions, as long as those funds remain clearly “identifiable and traceable.”

In this case, Green had spent a good portion of what she had received as a settlement. But approximately $80,000 remained, and a federal court, citing ERISA provisions, eventually ordered her to turn over that amount to Hannaford.

Hannaford continued to pursue the unusual step in Maine of going after the fees paid to an attorney. Simmons refused to cooperate, pointing out that he was not a party to the Hannaford Health Plan, and the funds in question no longer were “identifiable and traceable” as required under ERISA.

Bernstein Shur’s Rubin and Dan Mitchell, who represented Simmons, asked Judge Carter to dismiss Hannaford’s state law and federal common law claims on grounds that Hannaford, represented by Verrill & Dana, had misconstrued ERISA.

Carter agreed, concluding that ERISA pre-empted Hannaford’s common law claims and therefore provided the exclusive remedy available to the grocery store chain.

Rubin said the judge’s decision will have broad ramifications in Maine among benefit plan administrators and within the legal community.

“Plan administrators will use this as a guide to determine how far they can go in pursuing reimbursements from beneficiaries,” Rubin said, adding that the decision also sends a clear message that plans are restricted in their ability to pursue plaintiff’s attorneys. “This is an important decision from a lawyer’s perspective,” he said.

In addition, Rubin said the case also points to the inequities of the federal civil enforcement provisions contained in ERISA that penalize injured parties who receive inadequate insurance settlements.

In this case, Green received $300,000 for damages that likely exceeded $1 million, meaning she recovered just 30 percent of her total damages. Yet ERISA permits benefit plans to be reimbursed a full 100 percent.

“It’s often the case that someone like an Ellen Green, who suffered very serious injuries, doesn’t get treated very fairly,” Rubin said.
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